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Southeast Asia: Emerging Wave Of Opportunities In Booming Digital Economy

Last updated on August 14th, 2018 at 01:17 am

Venture capital funding into Southeast Asian startups tripled in 2017 from US$ 2.52 billion in 2016 to US$ 7.86 billion in 2017 according to data from Tech in Asia.

The flurry of activity in Southeast Asia’s startup scene is not surprising; the 11-country region has a population of about 650 million, about 42% of which are aged 24 and below according to data from the CIA World Factbook, and about 51% of the total population (equal to about 260 million) are active internet users with about 90% of them accessing the internet using their smartphones according to a report by Google and Temasek.

Bar chart showing people aged 0-24 (number., and percentage of the country's population) in Southeast Asian countries namely Indonesia, Philippines, Vietnam, Myanmar, Thailand, Malaysia, Cambodia, Laos, Singapore, Timor Leste, and Brunei.

HSBC revealed that Southeast Asia is the world’s fastest growing internet region with nearly four million users coming online for the next five years, representing a user base of 480 million by 2020.

Southeast Asians are also growing increasingly wealthy; in 2012, Southeast Asia’s middle class population (people with disposable income of $16-$100 a day) was estimated at 190 million people. According to Nielsen, by 2020, the figure is expected to more than double to 400 million.

With a youthful, increasingly digitally savvy population along with rising disposable incomes, Southeast Asia has the ingredients to fuel a major expansion of its digital economy over the next few years thereby triggering a wave of investment opportunities, making the region an attractive location for investors and entrepreneurs exploring opportunities in the digital space.

The digital revolution has already given birth to a number of homegrown unicorns such as Alibaba-backed Lazada (Southeast Asia’s e-commerce leader), Google-and-Tencent-backed-Go-Jek, Grab, Razer, Tokopedia, Traveloka and Sea to name a few however the region’s blossoming startup ecosystem is in good position to produce numerous more in the coming years. A report by Google and Singapore’s sovereign wealth fund Temasek found that that Southeast Asia’s digital economy is growing at a CAGR of 27% and is expected to expand four-fold from about US$ 50 billion in 2017 to US$ 200 billion by 2025.

By destination, Singapore and Indonesia raked in the lion’s share of 2017 funding dollars, while by sector, fintech, e-commerce and gaming took in the most investments according to Tech in Asia. However, there are untapped opportunities in other countries within the bloc and in other sectors.

 

Education

Education is big business in Southeast Asia and private education is on the rise partly thanks to an expanding middle class. Private education spend in Southeast Asia is estimated to have reached nearly US$ 60 billion in 2015 according to a report by global advisory firm EY. Education technology or “edtech” has tremendous potential in the region; London-based consultancy firm IBIS Capital estimates the global edtech market will expand three-fold between 2013 and 2020 to reach $252 billion in 2020. During that time, it is expected that the Asia-Pacific region will see its edtech market go from 46% of the global market to 54%.

Much of the growth is likely to stem from India and China which have the world’s largest and second-largest youth population i.e. those aged 10-24 (India has 356 million and China has 269 million people aged between 10-24).

However, Southeast Asia is also poised to ride the opportunity driven partly by Indonesia which is home to 67 million 10-24 year olds, the world’s third largest youth population. And unlike the hyper-competitive markets of ride-hailing, e-commerce, travel, food delivery and mobile payments, Southeast Asia’s “edtech” market is a relatively uncontested territory; while China and India both have an edtech startup to their list of homegrown unicorns (China has Yuanfudao and India has Byju’s), Southeast Asia has yet to find its own. There are however a few startups worth watching. One of them is Indonesian edtech startup Ruangguru (literally means “teacher’s room” in Indonesian) which is reportedly the largest marketplace for private tutoring in Indonesia, a country which despite having the world’s third largest youth population, ranks relatively poorly education-wise; a study commissioned by the Network for Education Watch Indonesia (JPPI) reveals that the index of education services in Indonesia in 2016 is at the same level as Honduras and Nigeria but lower than the Philippines and Ethiopia.

 

Health

Southeast Asian’s healthcare market is a growth opportunity supported by solid fundamentals; a growing population along with the rise of an increasingly affluent middle class is leading to an increase in Non-Communicable Diseases (NCD) such as diabetes, heart disease and cancer. According to the World Health Organization, 55% of deaths in the region are due to NCDs. This is creating an increased demand for healthcare however in terms of supply, the availability of medical facilities, equipment and manpower is relatively inadequate with the exception of Singapore; a ranking of 191 countries by the World Health Organizations of the world’s health systems ranks Singapore in 6th position while other Southeast Asian countries appear down the list; Brunei is 40th, Thailand is 47th, Malaysia 49th, Philippines is 60th, Indonesia is 92nd, Vietnam is 160th, Laos is 165th, Cambodia is 174th, and Myanmar is 190th.

Singaporean startup DocDoc is a healthcare platform that enables patients to find and schedule appointments with healthcare professionals overseas. The platform holds promise as a solution to connect affluent patients in Southeast Asia (Indonesia is a priority for the startup) seeking quality treatment in neighboring countries.

Go-Jek-backed Indonesian e-health startup Halodoc has taken a more holistic view in tackling Indonesia’s healthcare system; founded by the son of the founder of Mensa Group, one of Indonesia’s largest healthcare companies, HaloDoc has built a network of nearly 20,000 licensed doctors and about 1,000 certified pharmacies, and forged partnerships with service providers such as Go-Med (a medicine delivery service owned by Indonesian ride-hailing startup Go-Jek) and ApotikAntar (a medicine delivery service) to offer  an integrated healthcare solution for patients.

 

Home Services

Asia Pacific is the fastest growing region in the world for sales of home improvement products according to Euromonitor International.

While China is the biggest market in the region, Southeast Asia is positioned to account for a significant share of the market driven by strong housing demand (a survey by PropertyGuru found that home ownership is a major aspiration for Southeast Asian consumers), and rising disposable incomes.

The opportunity is a boon not just for sales of home improvement products but also for home improvement services as time-strapped, middle class home owners turn to service providers for their home improvement needs.

However, as much of these service providers are small businesses and individuals, they often have little to no brand recognition and are often hard to locate which means customers are forced to find such professionals through referrals from friends and co-workers.

Malaysian startups Kaodim, ServisHero and Recommend.my are aiming to capitalize on the opportunity.

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